Why You Should Pay Cash For Your Car

Would you like to quit throwing away thousands of dollars over and over again every few years? If you are a typical American you have done just that-repeatedly. So have I, but I plan on changing that and will do things differently in the future. If you are like most Americans you do it every time you buy a car. If you would like to quit throwing away money, consider paying cash when you buy a car, instead of taking out a loan. Many financial experts suggest you do just that.

It's amazing how much interest we have all wasted by getting a loan to buy a car. Most car loans are for terms of an even number of months, such as 24, 48, or 60. Using the loan interest calculator at asksasha.com, one can see a $15,000 a car loan at 7% interest with $350 monthly payments would take slightly more than four years to pay off. You would pay $2,310.54 in interest. Your $15,000 car would cost you $17,2310.54. If you paid the same interest rate and made payments of $400, you would still pay $16,976.13 for a $15,000 car. You would pay the car off, however, in slightly more than 3.5 years.

Many financial experts advise you to save your money and pay cash for your car. You won't be throwing away thousands of dollars in interest every time you buy a new vehicle. Just imagine what could be done with the interest money you are wasting by taking out a loan.

Noted financial expert Dave Ramsey, in an article, Don't Let Your Car Own You, at Daveramsey.com, notes that cars lose their values very rapidly. He notes that a typical car will have lost 60 to 70% of its value by the time a four year loan is paid off. As a result, a $25,000 car will only be worth $8,500. He questions the wisdom of taking such an action. He notes that not only will a car have lost its value, but the buyer will have paid $28,000 for a car worth only $25,000, when considering the interest.

He has frequently said that the average American spends money to buy a car that is a much more expensive vehicle than he really needs. He notes that the payment for that $25,000 car could be $598 a month. Ramsey says that if the car buyer would invest that $598 in a mutual fund for $30 years it would be worth slightly more than $2 million. Even if a person were to invest $200 every month and save $200 every month to pay cash for a much cheaper new or a good used car, you can see that he would develop quite a nest egg.

Dave Ramsey is not the only financial expert who advises consumers to pay cash for cars rather than taking out a loan. An author named Andrea, whose last name is not given, in an article, Buying a New Car? 6 Reasons to Pay Cash Rather than Financing Your Next Vehicle?on the website, personal-finance.thefuntimesguide.com, listed several reasons she thinks it is always best to pay cash when buying a car.

She says one reason is that you won't have to get approved for a loan, because you will already have enough cash for your car. In addition, she believes it is an advantage that you won't have to give your credit information to anybody.

Andrea says it is an advantage to not have to make a monthly payment. The amount you would have used for that could be used to pay down debt, save up for another car, or saving for an emergency.

If you pay cash for a car when you can afford it, you won't have to worry about bills or late fees later on.

Andrea also mentions how much money you will pay in interest by getting a car loan. She mentioned how much money that would go for a car loan that could be invested instead.

It won't take nearly as long to buy your car if you pay cash. Getting a loan can take three to four hours.

After you buy, some car dealers actually try to rewrite the loan for a higher amount. You won't have to deal with that.

Yes, it may take discipline to save enough money every month to pay cash for a car. Doesn't it take a certain amount of discipline just to be able to pay off a loan too, however? And with the discipline for paying off a loan comes all the disadvantages of a car loan.

Citations: Don't Let Your Car Own You, Dave Ramsey, Daveramsey.com

Loan interest calculator, no author listed, Askasha.com

Buying a New Car? 6 Reasons to Pay Cash Rather than Financing Your Next Vehicle? by Andrea, Personal-finance.thefuntimesguide.com